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Draft Defence Production Policy, 2018 – IDSA

In pursuance of Finance Minister Arun Jaitley’s 2018-19 budget announcement related to an “industry friendly Defence Production Policy 2018”, the Department of Defence Production (DDP) of the Ministry of Defence (MoD) released a 14-page draft policy on March 21, 2018. It seeks to replace the 2011 defence procurement policy of India.

Objectives –

The broad mission of the draft policy is to promote the Make in India initiative in the defence sector and create a world-class arms manufacturing base, fulfilling not only the larger goal of self-reliance but also the requirements of friendly foreign countries.

Draft Defence Production Policy 2018: Salient Features –

Unlike the 2011 policy, the draft of the 2018 policy sets a clear vision, a set of objectives and strategies. Its vision is to put India “among the top five countries of the world in aerospace and defence industries”.

The key objectives of the policy include development of a strong defence industry leading to higher self-reliance.

Setting its sight on the need to reduce the current high import dependency, the draft policy identifies 13 sets of weapon systems/platforms (including fighters, helicopters, warships, missile systems, ammunition and explosives, land systems, and electronics) whose development and manufacture would commence latest by 2025.

Other objectives include an increase in domestic arms sales to Rs 170,000 crore ($26 billion) by 2025, with around one-fifths of it – Rs 35,000 crore ($5.0 billion) – coming through exports.

The policy also intends to make India a “global leader in cyberspace and AI [artificial intelligence] technologies.”

Besides, the draft policy also talks of setting up an Aeronautical University on a 50:50 cost sharing basis between Hindustan Aeronautics Ltd (HAL) and the government; and the possibility of setting up an “autonomous National Aeronautical Commission, in line with Nuclear and Space commissions.”

Challenges –

The policy does not identify any specific new projects by name that would have given the industry an indication of the likely business prospects. Without such an indication, the draft policy suffers from the same uncertainty that the previous policy faced.

The second challenge that the draft policy suffers from is the structural distance of the DDP, the implementing agency of the policy, from the Defence Research and Development Organisation (DRDO) and the Acquisition Wing of the MoD (one may also add the users to the list) as far as domestic arms production is concerned.

Third, the draft policy, like its predecessor, does not fully address the private sector’s trust deficit with the government, even though the former is expected to play a major role under the Make in India initiative. The mistrust is largely due to the representation of senior MoD officials in the governing boards of the defence public sector companies, which often leads to the nomination of larger contracts in their favour.

Fourth, the DPrP does not address the issues of inefficiency and lack of accountability on the part of the DRDO, DPSUs and OFs, which, being the mainstay of Indian defence industry for the last several decades, are responsible for much of the indignity of the country’s poor track record in attaining self-reliance.

Last but not the least, the draft DPrP faces stiff budgetary constraints that may not allow the policy’s promised investments to fructify in a time bound manner. In all, the draft policy talks of investments worth over Rs 77,000 crore by 2025. These investments will come largely from the defence budget, either directly or indirectly. To accommodate such a large investment, the defence budget has to provide an extra Rs 11,000 crore or so per year for next six to seven years. However, this may not be feasible, given the huge resource crunch that the defence ministry is presently going through and which is likely to continue for the next several years.

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